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Type of site
|Founded||July 12, 1999|
|Headquarters||Las Vegas, Nevada, U.S.|
Warehouse: Shepherdsville, Kentucky, U.S.
|Key people||Tony Hsieh (CEO)|
Alfred Lin (Ex Chairman, COO & CFO)
Steve Hill (Ex VP of Merchandising)
Arun Rajan (COO & ex CTO)
|Products||Shoes, handbags, eyewear, accessories, clothing|
|Revenue||US$1 billion (2009)|
Zappos.com is an online shoe and clothing retailer based in Las Vegas, Nevada. The company was founded in 1999 by Nick Swinmurn and launched under the domain name Shoesite.com. In July 2009, Amazon acquired Zappos in an all-stock deal worth around $1.2 billion.
Zappos was founded in 1999 by Nick Swinmurn, who says that his initial inspiration came when he failed to find a pair of brown Airwalks at his local mall. That same year, Swinmurn approached Tony Hsieh and Alfred Lin with the idea of selling shoes online. Hsieh was initially skeptical, and almost deleted Swinmurn's voice mail. After Swinmurn mentioned that "footwear in the U.S. is a 40 billion dollar market and 5% of that is already being sold by paper mail order catalogs," Hsieh and Lin decided to invest $2 million through their investment firm Venture Frogs. The company was officially launched in June 1999, under the domain name "ShoeSite.com."
A few months after its launch, the company's name was changed from ShoeSite to Zappos (a corruption of "zapatos," the Spanish word for "shoes") so as not to limit itself to selling only footwear. In January 2000, Venture Frogs invested additional capital, and allowed Zappos to move into their office space. During this time, Hsieh came on board as co-CEO with Nick Swinmurn. After minimal gross sales in 1999, Zappos brought in $1.6 million in revenue in 2000.
In 2001, Zappos brought in $8.6 million, a significant increase from the previous year. In 2005, Zappos did $184 million in gross sales, and received their first round of venture capital, a $35 million investment from Sequoia Capital. That same year, they moved their headquarters from San Francisco to Henderson, Nevada. Over the next three years, Zappos doubled their annual revenues, hitting $840 million in gross sales. By 2007, the company expanded to include handbags, eyewear, clothing, watches, and kids’ merchandise. In 2008, Zappos hit $1 billion in annual sales. One year later, they debuted at No. 23 on Fortune's Top 100 Companies to Work For. In the early 2000s Zappos made the decision to move away from its original business model wherein the company does not manage any inventory. Hsieh noted, "Even though it was hard to walk away from sales at a time when nobody is offering you money, we couldn't distinguish ourselves in the eyes of our customers if we weren't going to control the entire experience. We had to give up the easy money, manage the inventory, and take the risk."
In 2009, Zappos started exploring an acquisition by Amazon. Within Zappos’ board of directors, two of the five—Hsieh and Alfred Lin—were primarily concerned with maintaining Zappos company culture, whereas the other three wanted to maximize profits in a down economy. Initially, Hsieh and Lin planned to buy out their board of directors, which they estimated would cost $200 million. In the midst of this, Amazon executives approached Zappos with the proposition of buying the company outright. After an hour-long meeting with Amazon CEO Jeff Bezos, Hsieh sensed that Amazon would be open to letting Zappos continue to operate as an independent entity, and started negotiations. On July 22, 2009, Amazon announced that it would buy Zappos for $940 million in a stock and cash deal. Owners of shares of Zappos were set to receive approximately 10 million Amazon.com shares, and employees would receive a separate $40 million in cash and restricted stock units. The deal was eventually closed in November 2009 for a reported $1.2 billion.
On June 22, 2012, Zappos announced it would be handing operations of its Kentucky warehouse to Amazon on September 1, 2012. The outlet housed in the Kentucky warehouse remains open, but the name was changed to 6 pm outlet.
2012 hacking incident
On January 16, 2012, Zappos announced that its computer system was hacked, compromising the personal information of 24 million customers. In response, the company required all of its customers to change their passwords on the site, though it noted that it was highly unlikely that password information was obtained due to encryption. This incident led to a class action suit In re Zappos.com, Inc., Customer Data Security Breach Litigation, with plaintiffs claiming that Zappos did not adequately protect their personal information.
On September 9, 2013, Zappos moved their headquarters from Henderson, Nevada to the former Las Vegas City Hall building in downtown Las Vegas, after an effort to renovate the building. CEO Tony Hsieh, at the time stated that he wanted "to be in an area where everyone feels like they can hang out all the time and where there's not a huge distinction between working and playing." The move was lauded by Las Vegas mayor Oscar Goodman who said "This move will bring about a critical mass of creative persons to the inner core of Las Vegas in addition to causing a significant shot in the arm for the economy and for new jobs."
As of 2010, shoes accounted for about 80% of Zappos' business. As of 2007, Zappos had expanded their inventory to include clothing, handbags and other accessories, which accounted for 20% of annual revenues. Zappos executives stated that they expected that clothing and accessories would bring in an additional $1 billion worth of revenue, as the clothing market is four times the size of the footwear market.
On average, Zappos employees answer 5,000 calls a month, and 1,200 e-mails a week (except in the holiday season, when call frequency increases significantly). Call center employees don't have scripts, and there are no limit on call times. The longest call reported is 10 hours 29 minutes.
According to the company, Zappos employees are encouraged to go above and beyond traditional customer service. In particular, after a late night of barhopping and closed room service, Hsieh bet a Skechers rep that if he called the Zappos hotline, the employee would be able to locate the nearest late-night pizza delivery. The call center employee, although initially confused, returned two minutes later with a list of the five closest late night pizza restaurants. Inc. Magazine notes another example when a woman called Zappos to return a pair of boots for her husband because he died in a car accident. The next day, she received a flower delivery, which the call center rep had billed to the company without checking with her supervisor.
CEO Tony Hsieh encourages his employees to use social media networks to put a human face on the company and engage with customers, following their core value #6: "Build Open and Honest Relationships With Communication.". Zappos employees maintain an active presence on:
- Twitter: Zappos run its own Twitter microsite for its 500 employees registered on Twitter. Among them, Tony Hsieh is one of the most followed persons on Twitter with 2.75 million followers. Employees are encouraged to use their Twitter accounts for casual communication rather than promotions or marketing pitches, in an effort to humanize the company, like when Hsieh tweeted before going onstage at a tech conference: "Spilled Coke on left leg of jeans, so poured some water on right leg so looks like the denim fade."
- Corporate blogs: Zappos runs several blogs covering topics related to its business.
In 2008, Zappos launched Zappos Insights, which aims to help other businesspeople refine their company culture and customer service. For $40/month, participants are offered access to a subscription video service that lets companies ask questions to Zappos employees. Zappos Insights also offers a three-day bootcamp where participants visit the headquarters and have meetings with Zappos executives.
In 2007, Zappos acquired 6pm.com, which has bargain shoes, clothing and accessories. In May 2010, 6pm.com accidentally priced all their merchandise at $49.95, including items such as GPS navigators. They honored the pricing glitch, taking a $1.6 million loss.
Zappos sponsors the "Zappos Rock 'n' Roll Las Vegas Marathon and ½ Marathon," which draw 28,000 runners each year. They also sponsor the Zappos WCC basketball championships. During the tournament, Zappos hosts "Kidz Day," which outfits local Las Vegas kids with a new pair of shoes and an event T-shirt.
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